Greetings, and welcome to the Bausch Health Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Garen Sarafian, Vice President, Investor Relations. Garen, please go ahead.

Good afternoon, and welcome to Bausch Health's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Garen Sarafian, Vice President of Investor Relations. Participating in today's call are Thomas Appio, Chief Executive Officer; JJ Charhon, Chief Financial Officer; and Jonathan Sadeh, Chief Medical Officer and Head of Research and Development. Before we begin, I would like to remind you that today's presentation contains forward-looking information. Please take a moment to review the forward-looking statements disclaimer at the beginning of the slides accompanying this presentation as it contains important information. Actual results may differ materially from those expressed or implied in these forward-looking statements, and you should not place undue reliance on them. Please also refer to our SEC filings and our filings with the Canadian Securities Administrators for a discussion of certain risk factors that could cause actual results to differ materially from expectations. We use non-GAAP financial measures to help investors better understand our operating performance. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should be considered in addition to and not as a substitute for measures calculated in accordance with GAAP. Reconciliations to our non-GAAP measures are included in the appendix of the slides accompanying this presentation, which are available on Bausch Health's Investor Relations website. Finally, the financial guidance in this presentation is effective as of today only. We do not undertake any obligation to update guidance. Our discussion today, Wednesday, February 18, will focus on Bausch Health, excluding Bausch + Lomb. However, we will briefly comment on Bausch + Lomb's results announced this morning. We will refer to year-over-year comparisons with the same period last year, unless otherwise noted. With that, I will turn the call over to our CEO, Tom Appio.

Thank you, Garen, and welcome to everyone joining our earnings call today. Our year concluded with an impressive 11th consecutive quarter of growth in both revenue and adjusted EBITDA, reflecting our organization's consistent performance. This success is powered by our global team's unwavering commercial focus and operational excellence as full year results exceeded our guidance on all key metrics. The fourth quarter gave us an opportunity to reflect on the progress we have made over the past year. Our commercial performance has remained strong across the markets we serve. Our capital structure has improved significantly. Our operating model has continued to deliver efficiencies, all of which has given us the ability to proactively pursue business development to enhance our long-term outlook. As we begin 2026, our strategic priorities remain firm and our approach consistent. We continue to prioritize initiatives that yield the highest value across our organization. Our global footprint and 2025 performance give us confidence for future growth. While JJ will walk through the financials in more detail, I would like to take a few minutes to highlight our fourth quarter performance. In the fourth quarter, Bausch Health, excluding Bausch + Lomb, increased revenue by 9% on a reported basis and 5% on an organic basis when compared to the fourth quarter of 2024. Salix, in particular, demonstrated resilient demand, excluding Medicaid, supported by solid volume in remaining channels and continued execution across promotional, access and digital capabilities. Adjusted EBITDA for Bausch Health, excluding Bausch + Lomb, increased by approximately 9% compared to the prior year period and ahead of implied guidance for the quarter. The business continued to operate efficiently as teams manage spending thoughtfully while sustaining the investment needed to support growth. On December 1, 2025, we acquired Shibo, full-service aesthetics distribution platform in China, strengthening our…

Thank you, Tom. Let's start with our consolidated non-GAAP financial performance for the fourth quarter, which you will find on Page 11. Revenue was $2.796 billion, up 9% on a reported basis compared to the same quarter a year ago. Adjusted gross margin was 71.6%, which was 80 basis points lower than the same period a year ago. Adjusted operating expenses were $1.33 billion, an increase of $75 million year-over-year. Adjusted R&D expenses were $161 million, which was a $2 million decrease when compared to the fourth quarter of 2024. Adjusted EBITDA was $1.52 billion in the fourth quarter, an increase of 13% year-over-year. Finally, adjusted operating cash flow was $515 million. Moving now to the fourth quarter of Bausch Health performance, excluding Bausch + Lomb, starting on Page 15. As Tom indicated, we had another strong operational performance across all metrics in Q4. Revenue for the fourth quarter was $1.391 billion, up 9% on a reported basis. Adjusted EBITDA for the fourth quarter was $773 million, a 9% increase from the fourth quarter of 2024. Adjusted operating cash flow for the fourth quarter was $362 million, down $205 million year-over-year, primarily due to the change in timing of our cash interest payments following the refinancing we executed on April 8, 2025. Our strong cash flow generation in Q4 allowed us to reduce our net debt by approximately $320 million, which was much better than originally anticipated. Turning now to our fourth quarter performance by segment, starting with Salix on Page 17. Salix revenues in the fourth quarter were $693 million, which was an impressive 9% increase year-over-year on a reported basis. This strong performance in Q4 was ahead of expectations. While we had anticipated the continuation of our double-digit script growth across all existing channels, we also benefited from…

Thank you, JJ. I would like to now shift from the financials to how we are positioning the company for success in 2026. I would like to highlight a few of our segments and businesses today to illustrate the breadth of our underlying portfolio and the many opportunities we see ahead. Salix is an industry leader in gastroenterology and hepatology. For over 35 years, we have built our company position by establishing long-standing relationships with health care providers, institutions and patients. Xifaxan, Relistor and Trulance are trusted set of brands that anchor our leadership position. Our focus on education, on patient access and ongoing physician engagement reinforces our standing as one of the top GI pharmaceutical companies in the United States. In 2026, we will continue our momentum with Salix in commercial and Medicare segments. We continue to leverage our customer insights platform to find new patient starts and accelerate starting treatment in all GI conditions that we treat, including OHE, IBS-D, IBS-C and OIC. Using AI enables us to do this in a way that is faster, is smarter and is more efficient. In 2026, we will leverage our data-driven approach to reach patients through direct-to-consumer advertising and to reach health care providers through improved targeting. This is a franchise we expect will continue to perform. Innovation remains central to the Salix segment. Larsucosterol, our Phase III program for alcohol-associated hepatitis or AH represents an important potential advancement. AH remains an area of substantial unmet need, and we are committed to advancing this program to deliver meaningful therapeutic options for patients. Following quarter end, we began enrolling patients in the Phase III study, marking a key step forward for this program. Turning to Solta. Solta is a leading medical aesthetics platform and offers a comprehensive set of energy-based devices…

[Operator Instructions] Our first question today is coming from Umer Raffat from Evercore ISI.

This is [ JP ] in for Umer. Congrats on the quarter. I have one question. Post RED-C readout, what is your updated decision framework for the separation? How are you thinking about gating items and debt repayments? What's -- can you please illustrate?

Yes. Thanks for the question. I think that the way I would say it is there's no change. We're -- of course, we're disappointed in the results from RED-C. But we continue to focus on repaying debt and reinvesting in our business, whether promoting existing products, developing new products or engaging, as I said in my prepared remarks, engaging in business development activities, which is one of the things we are accelerating now that we have significantly changed our capital structure with the refinancing.

Following up on the BD.

Yes. Sure.

Yes. Can you please give some more color about your business development plans?

Sure. Well, firstly, as you know, the acquisition of DURECT, and Jonathan is here, and he can talk about that. And when we acquired DURECT, we acquired it not just for alcohol-associated hepatitis, but also as a platform. So we have been -- and Jonathan can speak to that. The other thing also from business development is looking at the therapeutic areas that we compete in. We have screened a lot of assets, looking at where we can bring in acquisitions that we can leverage with our outstanding commercial team. That's one of the greatest assets of this company is the commercial excellence, both from a selling and marketing perspective. So we're looking for different assets that we can put and slot into those teams. Also looking, as I talked about in my prepared remarks, on Solta, where Solta is a great brand for us. We have great innovation there, and there is opportunities to continue to look at acquisition possibilities to slot into the portfolio as well. I'll hand it to Jonathan, you might want to talk about the direct acquisition and why we see it as a platform.

Yes, of course. So Larsucosterol was really a great acquisition for us. To remind you, it's an epigenetic modulator. So prevents cell death and response to acute cell injury. DURECT did a great job of proving that this drug is very efficacious in one setting of acute cell injury and alcohol-associated hepatitis. And that's the first -- the lead indication that we have started Phase III with and strongly believe in the data that we saw in Phase II. But we -- as Tom was saying, we believe this is a platform because if we do see an effect -- such a strong effect in one form of acute cell injury like alcohol-associated hepatitis, we believe and we actually DURECT has some preclinical and clinical data to suggest that in other settings of acute cell injury, we would also see efficacy. So we're now actually going over all these other potential indication and hope to prioritize some of those in the very near future.

Next question today is coming from Les Sulewski from Truist Securities.

I have two and then a follow-up maybe to Jonathan. So, first on Solta, can you just share some puts and takes around the Shibo integration? Specifically, how much of the guided revenue and EBITDA growth is driven by the accounting step-up versus the volume growth of Thermage? And could you provide the expected margin accretion from the shift once the channel is fully operational? Second, on the diversified segment, should we expect generics of Aplenzin and BRYHALI launching this year? And if so, what's a fair erosion step down to model? And how are you thinking about plugging these revenue gaps?

Okay. Les, I'll take the first part of the question regarding Solta. So we closed the acquisition on December 1, 2025, and things are going very well with a very smooth transition. The teams in China, both from the Solta side and the Shibo side have done a wonderful job working to integrate the two companies. I was there in the middle of December, spoke to the entire team. the Shibo team is extremely excited to be part of Solta. It has been a long-standing relationship that we've had with Shibo. So it is going very well. In terms of your question regarding the accounting, I will pass that to JJ.

Les, there are two major impacts in the quarter. The first one is we purposely decided not to sell additional volume in November. So November, obviously, was kind of a blank for Solta in China. Conversely, we start selling directly to the market in December. So that provided kind of a partial offset. And then on top of that, due to purchasing accounting, we basically had to step up on some of the volume that was sold to our customers in December. Net-net, it's about a $10 million to $15 million hit from an EBITDA perspective in the quarter.

Do you want to take the revenue gap on the Aplenzin LOE?

Yes. Aplenzin, the way I would model it is kind of a standard erosion curve, we are expecting a number of competitors to come immediately after we lose exclusivity on Aplenzin, which is in June of this year. And so I would not expect any unusual behavior there.

Les, you had a follow-up?

Yes. For Jonathan, perhaps on Larsucosterol, can you share some color around the Phase III study design? What effect size are you powering for? And what control mortality rate would you assume? And I guess, what's the delta in survival do you think that's sufficient for filing?

Yes, it's a great question. So, first of all, in terms of the design of the study, we've started the study now in record time, three months after we acquired the drug from DURECT. It will be a U.S.-only study. It will include about 350 patients randomized between drug and placebo, and the primary endpoint is 90-day transplant-free survival. We've had discussions with regulators, with the FDA about this and feel very confident about it. It's somewhat fairly similar to the design of the Phase II trial that DURECT ran. We've just made some design improvements, and we think the trial will be a bit more efficient than was run in Phase II. Now to your question about the effect size, I think we've followed the Phase II results, and we're data-driven and following what was seen in Phase II. We designed the trial to reflect that. DURECT saw over 50% reduction in 90-day mortality. We believe that if we can replicate that, that would be an amazing result. To remind you, there's actually no therapies approved right now, no therapies available really for this patient population. So we think this would be a huge advancement in the management of these patients and will be really very important for us and for patients out there. Does that answer your question?

Yes, very helpful.

Next question today is coming from Michael Freeman from Raymond James.

My first is on Xifaxan. I wonder if -- it is fair to think that 2026 will be a peak year for Xifaxan sales given we have some renegotiated rates under Medicare for 2027. And if that holds true, what are your plans to accelerate sales during 2026 and mitigate the impact of the renegotiated rates under Medicare in '27?

Yes, Michael, thanks for the question. As you know, since I became the CEO, my focus has been on Xifaxan and driving growth. And that was the one thing that drove the decision to have our AI engine and build it. We think we have a best-in-class engine here, which has really helped our field forces be very efficient in terms of who they're speaking to and how frequently they're speaking and what they're actually delivering in the message of what the HCP wants. So the focus here has been continuing to accelerate. As you saw, we continue to grow Xifaxan already on the market over 20 years. We still delivered a 10% net sales growth in Q4. So, as we look to '26, we will continue to stay focused on driving execution in the channels where we compete. So we feel confident in being able to continue to grow in those channels. There's still a lot of unmet need for patients to be treated with OHE. As I've said on previous calls, right now, we're probably still only treating. Of course, this is patients that are diagnosed, probably 40% to 50%. So there's still a good amount of space there to continue to grow before the product goes LOE. I want to -- maybe JJ wants to add something to that?

Yes. Michael, a couple of things just to highlight. While we'll continue to grow the business in the channels we're currently selling Xifaxan, which exclude the Medicaid and to a certain extent, the 340B channel. On a reported basis, 2025 might be the peak year for Xifaxan just because we had some onetime benefits in the year. that will not repeat in 2026. I think we've clarified that in the prepared remarks. So I'll mention a couple of elements. First, at the end of the third quarter, we had to adjust our gross to net percentage to reflect the fact that we had exited Medicaid. So that was kind of a good guy in the third quarter. In the fourth quarter, we still had some residual volume from Medicaid states that were not discounted by definition because we had exited programs. So that provided also another benefit. And then conversely, if you look at 2026, there will need to be an adjustment of our gross to net accrual in the fourth quarter of 2026 to reflect the fact that the new CMS rebate will become effective on the 1st of January 2027. So a lot of accounting pluses and minuses, but I think you're thinking about the right way, which is operationally in the channels we currently serve, we'll continue to grow our Xifaxan revenue in '26.

Okay. Okay. And now a follow-up. I guess, thinking another way about, I guess, the timing and your framework for thinking about the full separation of Bausch + Lomb. What are you hoping to see develop within that business before it's appropriate to pursue the full separation?

Yes, Michael, I think when we look at it, right, as we talked about in the prepared remarks, the refinancing provided great flexibility for us. So it was a significant achievement this year. And I don't know if you had a chance to listen to Bausch + Lomb's call this morning. So, I think, I look at it this way. We believe in the Bausch + Lomb plan, the growth story, the margin expansion story and the selling and operational excellence. They have a robust pipeline. They have a robust product portfolio today. And then if you had listened to Investor Day, where their pipeline is going. So we really believe in that pipeline. And then lastly, they have a great team, and they had a great quarter, and we are really excited about the future of Bausch + Lomb and given the fact that we own 88% of it. So we're just looking now to the market to reflect the value in Bausch + Lomb. JJ, do you have any further comments?

No, the only thing I would just clarify or add is that the refinancing basically based on our projections allow us to pretty much deal with the maturities until the end of 2028, assuming we maintain exclusivity on Xifaxan until the 1st of January 2028. So that flexibility allows us to really be patient and to wait for really the share price of B&L to reflect the improved execution and the financials that have been shared with investors late last year during Investor Day. So that's point number one. Point number two is in light of what I think we've discussed last year, the separation per se will have to be in the form of really selling our B&L equity stake. There's been, I think, in the past, some chatter around some distribution of B&L shares, but I think the highest probability outcome will be in the form of selling down our equity stake.

Next question is coming from Glen Santangelo from Barclays.

Tom, I think everybody just generally accepts the fact that the near-term results, they continue to look fantastic. But sort of based on our incoming call volume, it seems like everybody just wants to talk about the EBITDA impact in '27 coming from the IRA and the pricing changes and then again, in sort of 2028 with the LOE. And I seem to remember, I thought you gave us some guidance in the past about how '27 EBITDA may shape up relative to '25. And I couldn't remember specifically, but I don't know if there's anything you can give us to give us a better sense of the EBITDA trajectory just sort of given those two events that are kind of coming up.

Glen, thanks for the question. And yes, the results, we're really pleased with the 2025 results. I'm going to hand it over to JJ because on previous calls, he's discussed this.

Glen, what we've said in prior calls, actually more specifically in Q3 is that the average of 2026 and 2027 would be fairly similar to the EBITDA that we deliver in 2025. And despite the overperformance that we've had in 2025 and the very strong fourth quarter, I can reiterate that guidance. Now obviously, given that we've provided guidance for 2026, you can figure it out exactly how we're thinking about 2027 in light of that guidance. But yes, there are obviously partial offset to that higher CMS discount that provide us to soften, I would say, the relative drop that you can see, but we've got other growth platforms that we continue to work on, starting with Solta and some of the other segments. So I think that will help you rationalize the implied number for 2027.

All right. Maybe if I could just ask one quick follow-up on the cap structure. Obviously, you made a lot of good progress here. And Tom, I don't want to put words in your mouth, but it sounds like you believe that you're at a place where you can start doing business development currently, and you've done that this quarter. But just to sort of follow up on JJ's comments, you now believe the plan will ultimately be to sell Bausch + Lomb as opposed to do the spin, does this -- would the sale have to be an all-in one shot? Or could it theoretically you sell different pieces of the company or different percentages of the company down as need be to handle the upcoming maturities, which seemingly are not until 2028 anyway. So it seems like you have some time. So I just wanted to really try to understand the strategy of how you may approach Bausch + Lomb just sort of given you have a little bit of time on your side versus maybe near-term business development priorities. I'll stop there.

Thanks, Glenn. So when it comes to business development, of course, doing the refinancing, the finance team and the legal team did an outstanding job. This is just incredible what we've been able to do and to give us runway. And so with that runway, and we're able to now really do focusing on BD, as you saw with the direct acquisition that we did in the third quarter, the Shibo acquisition in the fourth quarter and looking at our capital allocation and where we can create the best value. And there is a lot of assets out there that we continue to screen and looking for the right fit for Bausch Health. As I said in a previous question, one of the greatest assets we have is our commercial team and our commercial capabilities in worldwide. So that is going to be the focus going forward, of course, all driven by being able to do the refinancing. I'll hand it off to JJ to add more to your question.

Yes. So when it comes to the monetization of our B&L equity stake, really all options are on the table. I think what will guide really our monetization decisions, as we said in our prepared remarks, is really shareholder value creation. The flexibility that we've got and the extended runway that we've created through the refinancing of $9.6 billion of our debt last year now allows us to be more patient and to evaluate all possible options to monetize our equity stake while at the same time, creating shareholder value. So that's the way we think about it.

And I think, Glen, as we look at the performance for 2025, the focus is going to be getting more products into the hands of our commercial team. So it's going to be a focus now continuing to look for assets to bring into the portfolio, not only that are possibly already on the market, but the fact of what we can do from a development perspective in R&D.

Next question today is coming from Jason Gerberry from Bank of America.

This is Chi on for Jason. One and another follow-up. So the first one is, you mentioned there were some higher-than-planned residual volume from several state Medicaid. Can you quantify the impact to 4Q? And was that impact segment across portfolio? If not, which product benefit the most from this onetime dynamic? And my follow-up is on the scope of BD. How large of a BD are you willing to consider based on your current capital structure?

Yes, Chi, thanks for the question. I'll take your second question first, and then I'll hand it off to JJ. We're looking at all types. As you know, we are constrained in terms of the capital structure that we have. and what we can -- how much we can spend. But there is -- as we look at it, we look at our portfolio and how do we -- are we able to maximize it? And is there assets that we could bring in at a certain value? Are there other assets that some others could be interested in. So we look at it -- we keep a very open approach to type of deals we can do and the size of the deal we can do. And so that's the framework that we're using today. I'll hand it over to JJ on your question on the residual volume on Xifaxan.

Yes. Most of that volume is really associated with Xifaxan in the fourth quarter and that really happened in October, November. It was less than $50 million in terms of revenue.

Our next question is coming from Michael Nedelcovych from TD Cowen.

I have two. My first is on the outlook for Xifaxan generics. What are the key events that we should be watching that could decide if a Xifaxan generic becomes available before 2028. We're less than two years away now. So I'm curious what would you say is your level of confidence that Xifaxan will retain exclusivity through to the settlements with generics companies in 2028? That's my first question. And then my second question is more of a follow-up. It relates to the medium-term outlook. JJ, you hinted at this in a previous response, but I think you said on the last call that EBITDA averaged across 2026 and 2027 would be roughly flat versus 2025. So we now know that you're looking for low to mid-single-digit EBITDA growth this year. Should we then assume a step down in 2027 of a similar magnitude?

Yes, Mike, I'll take the first question, and I'll let JJ take the second. As you know, we know we will have a generic in January 1, 2028. So as we look at it, we're trying to maximize the value of Xifaxan today. As you also know from the public records, Teva continues to be the first filer as first filer status. There's two cases right now in the D.C. District Court on appeal. And that's taking its course. And then lastly, we have our other patent case in the New Jersey District Court on the new patents at issue with Amneal and Norwich, of which we're still waiting to see, but is there -- the 30-month stay applies to Norwich second ANDA and still needs to be determined, which we believe the 30-month stay applies. Basically, the way we look at it is we'll continue to provide updates on these matters as it moves through the court system. JJ?

Yes. So you're correct. There will be a dip in 2027. I think the math basically suggests that 2027 would be around $2.7 billion, if you follow the math and the logic that I just outlined.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Tom Appio, CEO, for closing remarks.

Well, thank you all for joining us today for your questions. We closed out another solid quarter and a year of meaningful growth, supported by results across a broad portfolio. Our progress in 2025 reinforces the foundation we are carrying into 2026 and positions us to deliver another year of strong execution and continued progress. I thank you again for the time and the interest you have in our company, and enjoy the rest of your evening.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.